1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION
2 450 N STREET
3 SACRAMENTO, CALIFORNIA
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8 REPORTER'S TRANSCRIPT
9 MAY 30, 2012
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15 CUSTOMER SERVICES & ADMINISTRATIVE EFFICIENCY COMMITTEE
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27 REPORTED BY: Kathleen Skidgel
28 CSR NO. 9039
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1 P R E S E N T
2 For the Board Michelle Steel
of Equalization: Chair
3
4 Jerome E. Horton
Member
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6 Betty T. Yee
Member
7
8 George Runner
Member
9
10 Marcy Jo Mandel
Appearing for John
11 Chiang, State Controller
(per Government Code
12 Section 7.9)
13
Joann Richmond
14 Chief
Board Proceedings Division
15
16 ---oOo---
17
For the Department: Jaime Garza
18 Deputy Director
External Affairs Department
19
Kari Hammond
20 Staff Services Manager II
Outreach Services Division
21
Susanne Buehler
22 Chief, Tax Policy Division
Sales and Use Tax Department
23
Liz Houser
24 Deputy Director
Administration Department
25
Regina A. Corso
26 Senior Vice President
Harris Interactive Poll
27
28 ---oOo---
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1 450 N STREET
2 SACRAMENTO, CALIFORNIA
3 MAY 30, 2012
4 ---oOo---
5 MR. HORTON: Ms. Richmond, our next item.
6 MS. RICHMOND: Our next item is the Customer
7 Services and Administrative Efficiency Committee.
8 Ms. Steel is the Chair of that committee.
9 Ms. Steel.
10 MS. STEEL: I call the Customer Services and
11 Administrative Efficiency Committee meeting to order.
12 We have three agendas, um -- three items on
13 this agenda. And first item is update on the Electronic
14 Registration, um, we call eReg Marketing and Outreach
15 Plan.
16 And Mr. Jaime Garza, welcome.
17 MR. GARZA: Thank you. Good morning.
18 MS. STEEL: And Kari Hammond, too.
19 MR. GARZA: Thank you.
20 Uh, good morning, Madam Chair and distinguished
21 Board Members.
22 I'm Jaime Garza, the Deputy Director of the
23 External Affairs Department. And joining me this
24 morning is Kari Hammond who is our Manager of the
25 Outreach Services Division.
26 And we're here today to give you a brief
27 overview of the educational campaign for BOE's new
28 Electronic Registration System, or we -- as we like to
3
1 call it, eReg.
2 Ms. Hammond will provide a brief overview right
3 now of our outreach efforts.
4 Ms. Hammond.
5 MS. HAMMOND: Good morning, Chair and Members.
6 Kari Hammond with Outreach Services Division.
7 The purpose of this educational effort is to
8 notify the public of the change in the current BOE
9 process and to encourage, um, compliance when
10 registering for the applicable permits, licenses or
11 accounts, using eReg.
12 The primary audiences for the campaign are new
13 business owners, tax practitioners and nonprofit
14 organizations.
15 Staff will be working with our existing
16 business owners and permit holders to let them know how
17 eReg can help them or how to use the eReg system.
18 We propose the educational campaign will be
19 conducted in three phases. So we're currently in what
20 we call phase one, which is our pre-launch partnering
21 phase. Staff has contacted a number of partner
22 organizations, talked to them about the benefits of
23 eReg, and we're out-reaching with them to help us, um,
24 raise awareness to those key, um, audiences.
25 Staff has reached out, for example, to, um, all
26 of California small business development centers, the
27 local Chambers of Commence state-wide and local
28 governments.
4
1 Phase Two is what we call post launch awareness
2 and compliance. We plan to send out press releases,
3 promote eReg via social marketing, BOE events and
4 speaker bureau, um, engagements. We'll work closely
5 with our partner organizations to educate the public
6 through these type of events, and partnership
7 agreements.
8 The final phase is ongoing compliance. So as
9 we learn more about how eReg is working for our
10 customers, we'll adjust our educational effort to target
11 the compliance challenges.
12 MR. GARZA: And we've also developed a number
13 of educational eReg items. The first are some posters
14 to be displayed in our district offices and to be handed
15 out to partner organizations. Uh, the series of posters
16 portray different tones to, uh, provide flexibility in
17 addressing various audiences.
18 Uh, the second brochure is designed to give our
19 customers a simple clear overview of eReg and raise
20 awareness about the system.
21 And finally, we have developed some inserts
22 that will be mailed and given to our external partners
23 as a way to inform our customers about eReg.
24 This package of materials conveys a consistent
25 look and message that starting or doing business just
26 got easier with eReg, a new streamlined service that
27 offers our customers a convenient, a fast and free way
28 to register online for permits, licenses and accounts.
5
1 This concludes our presentation on eReg, and
2 we're happy to answer any questions.
3 MS. STEEL: Thank you very much.
4 We are moving towards the future. And any
5 comments and questions?
6 Member Yee?
7 MS. YEE: No. Just that it's about time.
8 MS. STEEL: How long it's going to take to take
9 over the paper documents?
10 MS. HAMMOND: Um, I believe that it's one month
11 after the June 18 launch that we will no longer be
12 accepting paper.
13 If you'd like that answer specifically, we can
14 ask Susanne Buehler.
15 MS. STEEL: Right. There's three offices just
16 paperless completely. And could you tell -- I already
17 know the answer, but could you tell the public.
18 There's 15 people got returned. But how they
19 pay the taxes?
20 MS. BUEHLER: I'm sorry. Ask the question
21 again.
22 Susanne Buehler with Sales and Use Tax.
23 MS. STEEL: There are three offices that are
24 totally, um -- they have to file all the taxes in
25 e-file -- I mean, you know, pay taxes electronically.
26 And then they brought the, um, check -- they brought --
27 what they brought? Cash. And then they were returned.
28 And then, you know, how they paid it?
6
1 MS. BUEHLER: Oh, I think you're referring to
2 the No Cash Pilot --
3 MS. STEEL: Oh, okay.
4 MS. BUEHLER: -- that we have in some of our
5 district offices.
6 MS. STEEL: We have too many customer services
7 here that we are moving really forward. And I'm so
8 excited that there are so many things are going on.
9 But that was really interesting that we really
10 have to hear about it.
11 MS. BUEHLER: Yes, that will be tomorrow under
12 Mr. McGuire's Deputy Director Report.
13 MS. STEEL: But you can still give it to us
14 because that's the answer.
15 MS. BUEHLER: Certainly.
16 We did start a No Cash Pilot in three offices
17 at the Board of Equalization where we encouraged our
18 taxpayers to please come without cash, pay by check,
19 money order or credit card or online with us.
20 Um, it's been very successful so far. We did
21 have a lot of outreach at the beginning, before we
22 started the No Cash Pilot. And we did have some
23 taxpayers that did come in with the cash despite the
24 posters and the, um, ongoing education that had
25 occurred. And we provided them with information of
26 where they could in turn go and change that cash into a
27 check or money order or their other options of paying by
28 credit card or check while they were in the office.
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1 Um, almost everyone came back that same day and
2 paid. We had 15 individuals who did not, but all 15 did
3 eventually pay; um, 14 of them within a few days, and
4 the final within a few weeks. So they all did get the
5 hang of it.
6 We've had a lot of positive feedback from both
7 staff and taxpayers. They see it as the next step in
8 the future. Um, it -- it's been an exciting pilot for
9 us. We were, um, a little anxious at the beginning
10 about how it would be received but are pleasantly
11 surprised so far.
12 MS. STEEL: So since, uh, Mr. Garza came to the
13 Board then, you know, we are really moving fast in all
14 the customers services and all the registrations and
15 everything, just moving forward to do without paperwork.
16 So we are doing great job. And I really thank,
17 to the staff, that you guys are doing good job.
18 So, if there's no questions or comments, we're
19 going to move to item two. Uh --
20 MR. HORTON: Madam Chair, if I may?
21 MS. STEEL: Mr. Horton.
22 MR. HORTON: Yes. Um, just wanted to
23 compliment the Chair as well as to, um -- to, uh, ask
24 that in the process of marketing the eReg or starting a
25 business, that we take the opportunity to address some
26 of the tax gap issues as well.
27 Uh, part of the -- and I believe this process
28 will do that because it accelerates starting a business
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1 and enhances one's ability to register with the Board of
2 Equalization, uh, simultaneously as they begin to start
3 registration with other entities that are required to
4 start a business.
5 As most of -- as many of us believe is that
6 many business people actually start elsewhere, instead
7 of the Board of Equalization. And so by the time that
8 they register with the Board of Equalization, a few
9 months or a few days could have gone by. And yet the
10 sales activities, uh, will have -- are ongoing and the
11 registration starts six months later, in the case of one
12 particular taxpayer in my district, uh, and the city was
13 a little concerned about the local tax not being
14 accounted for.
15 And so this gives us an opportunity to
16 associate revenue, uh, to this effort and at the same
17 time address some tax gap issues. Just a FYI, if you
18 will.
19 MS. STEEL: Mm-hmm.
20 Anymore comments?
21 We're going to move on to second item. We talk
22 about tax gap here, a presentation of new educational
23 materials to inform the public about the underground
24 economy.
25 Mr. Garza.
26 MR. GARZA: Thank you very much.
27 The next item is the presentation of the
28 educational materials that focus on the underground
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1 economy which hurts all Californians and deprives our
2 state of billions of dollars in corporate, personal and
3 sales and use taxes each and every year.
4 A number of educational tools have been created
5 to raise awareness about the underground economy and its
6 impact on legitimate California businesses. Our message
7 is to don't buy into California's underground economy.
8 Uh, these materials are available upon request
9 and can be used as Board Members see fit, at seminars,
10 at district offices, at educational events.
11 Uh, we are also making them available, with
12 your approval, uh, on the website, for the public to
13 view and for them to download if they find the
14 information compelling enough that they can use it in --
15 in their personal lives, as well as news release
16 attachments, press events that focus on tax fraud and
17 tax evasion, and made available to partner organizations
18 such as Chambers of Commerce, local governments, law
19 enforcement and state agencies.
20 The brochure simply describes the illegal
21 activity that feeds the underground economy and how the
22 public can personally make a difference. The series of
23 posters portray different tones to provide flexibility
24 in addressing various audiences.
25 Uh, this concludes our presentation, and I'm
26 happy to answer any questions regarding these
27 educational materials.
28 MS. STEEL: Any comments? Questions?
10
1 MR. RUNNER: I -- I -- in reviewing the
2 materials on the tax -- uh, in regards to the
3 underground economy, I thought it was very cleverly
4 done. I thought the message is very clear, and I think
5 it's, uh -- I think it's important for us to send a good
6 positive direct message to people in regards to the
7 consequence of buying into the -- the underground
8 economy.
9 So, hopefully we can figure out how to get
10 those out there and seen and see behavior change.
11 MS. STEEL: I think we can use, by the staff,
12 the first one, friendly one, first. And then if they
13 don't pay, the tougher and harder one.
14 MR. RUNNER: Like the mugshot one?
15 MS. STEEL: Yeah.
16 MR. RUNNER: You know what I'm talking about?
17 MS. STEEL: Yeah.
18 MS. YEE: That would be good.
19 MR. GARZA: And, again, uh, with due respect,
20 Madam Steel, um, they are for different audiences.
21 That's the flexibility that we're offering there.
22 MS. YEE: Madam Chair.
23 MS. STEEL: Yes, Member Yee.
24 MS. YEE: Um, I wanted to see if, uh -- just so
25 these aren't kind of sitting on a shelf, collecting
26 dust. Are we reaching out to some of our sister
27 agencies --
28 MR. GARZA: Yes, we have, Ms. Yee.
11
1 MS. YEE: -- that are active in the underground
2 economy.
3 MR. GARZA: We -- in our process, a part of
4 this is looking at, uh, potential stakeholders and
5 partners. We've actually shared this information, uh,
6 with some of our law enforcement folks that we've been
7 reaching out to. For example, the LA County Sheriff's
8 Department --
9 MS. YEE: Uh-huh.
10 MR. GARZA: -- wanted to see what we were
11 creating. Placer County Sheriff's, Sacramento County
12 Sheriff's.
13 MS. YEE: So we sent them posters?
14 MR. GARZA: Uh, and we did send them PDFs.
15 MS. YEE: Okay.
16 MR. GARZA: It's easier for -- for
17 cost-effectiveness. Uh, and we've also shared them with
18 some of our, uh, other state agencies that are very
19 concerned about the underground economy, such as DMV
20 and, uh, Consumer Affairs and folks like that.
21 And we've made them -- and told them they are
22 more than, uh -- they -- they can use our -- our
23 materials. We're proud of what we're doing at the Board
24 of Equalization.
25 MS. YEE: Okay. Thank you.
26 MS. STEEL: Any more comments?
27 Okay. We're going to move on to third item, a
28 discussion of the Harris Interactive Polls on use tax.
12
1 This is actually very interesting result that,
2 you know, I was looking at it. And under the $8 billion
3 tax gap, I think it's going to help, uh, to know that
4 how public thinks about the use tax that, you know, most
5 people didn't know. And it was interesting to see the
6 results.
7 So, Mr. Garza.
8 MR. GARZA: Thank you again.
9 Our next item is the Harris Interactive Poll.
10 And with me this morning is Liz Houser, our Deputy
11 Director of Administration, uh, Department, and Regina
12 Corso, who is the Senior Vice President at Harris
13 Interactive.
14 Uh, the Board of Equalization contracted with
15 Harris Interactive to complete a broad-based survey
16 regarding Californians' attitudes and perceptions
17 towards use tax. Uh, this survey was conducted at the
18 request of the legislature during the review of our Tax
19 Gap 2 BCP, and approved by BOE's department head
20 committee.
21 Uh, the Harris poll is now complete. The
22 results of the poll are in. It surveyed more than a
23 thousand Californians, and it shows the need for a more
24 extensive outreach campaign to educate taxpayers about
25 use tax and obligations.
26 Here is, uh, just some of the findings to share
27 with you this morning. Seventy-eight percent of
28 Californians did not know or were not aware about use
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1 tax prior to taking this survey. Of those, more than
2 half, 57 percent, said they would likely pay use tax
3 after learning about this tax. Roughly two-thirds would
4 pay use tax if it funded local schools, public safety,
5 libraries, transportation, among others. And four in
6 five of the Californians surveyed made an out-of-state
7 purchase within the past year, and most of them either
8 through the Internet or mail order.
9 Uh, the Harris poll has provided, uh, some
10 valuable information that we think, uh, can be used to
11 enhance current strategies that will help point us in
12 the direction that we need to go in terms of educational
13 efforts.
14 Uh, the External Affairs Department is
15 collaborating with the Sales and Use Tax as well as
16 Special Tax Department to extensively review the polling
17 data and to develop some focused initiatives that if
18 proven to be effective in increasing compliance, uh,
19 could be used as concrete data if we return before the
20 legislature in the future.
21 Uh, I am going to hand over this presentation
22 now to Regina Corso with Harris Interactive to discuss,
23 uh, a little more about the methodology, as well as
24 findings.
25 Ms. Corso, welcome.
26 MS. CORSO: Thank you very much.
27 Good morning everybody.
28 Um, as Mr. Garza has said, I am here to discuss
14
1 the methodology as well as the high-level findings.
2 Obviously I'll be throwing out some statistics, so
3 please stop me if you'd like me to further explain
4 anything.
5 Um, you know, we were hired to basically take
6 a, um, perception and attitude test towards the use tax
7 among California residents. To do this, what we did was
8 we surveyed over 1,000 California residents in this --
9 in the month of April. Took us about one week to
10 actually conduct the field, and we worked very closely
11 on the questionnaire design with Jaime's staff and team
12 to develop a questionnaire that all were comfortable
13 with and that was very fair and very balanced. We
14 wanted to make sure we got the answers right.
15 What we did was we did this online and all of
16 the results were weighted to represent the State of
17 California. So when we're talking about the survey, we
18 are talking about what California residents think. And
19 we did find some very interesting things.
20 You know, first, as we saw already, that we do
21 think it is possible, you know, to develop a successful
22 campaign. However, there are some factors that need to
23 be overcome first. And the first is an education
24 factor.
25 One of the key reasons right now, we've
26 discovered, for noncompliance towards the use tax is
27 just an overall lack of awareness that it even exists.
28 Now, as we saw, most people do not know what the use tax
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1 is.
2 One of the things we asked was importance. How
3 important are taxes to vital services that serve you and
4 your community? You know, 9 in 10 say if, you know,
5 very or somewhat important, property tax, income tax,
6 both state the federal. These are things people know.
7 But when we got to use tax, just 62 percent said it was
8 very or somewhat important. Again, there's a lack of
9 awareness of what this actually means.
10 Now, just 1 in 4 report being extremely or very
11 familiar. I know that's -- with the use tax. It's a
12 very low number. And we also know that most people
13 do -- they're afraid to say that they are not familiar
14 with something. So that number does tend to be slightly
15 exaggerated and we do know that. So the number is very
16 low.
17 We also know that two-thirds of California
18 residents were not aware when you buy merchandise from
19 out-of-state stores, by mail order, over the phone, that
20 if tax isn't collected, they are required by law to
21 actually pay it back to the State of California. Again,
22 an education campaign.
23 Now, when we asked about what would, you know,
24 get you motivated to comply with this law, well, basic
25 understanding that there is a legal requirement to do so
26 is top on the list.
27 Upon learning about the use tax, over half of
28 California residents say they are very or somewhat
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1 likely to therefore pay the use tax. You know, 76
2 percent said that they would be very or likely -- very
3 or somewhat likely to pay the use tax if they knew it
4 was required by law. And then 71 percent say they would
5 be likely to pay if there would be penalties for not
6 paying. Again, there's lack of education.
7 But one thing to keep in mind is a successful
8 campaign will need to overcome some pretty general
9 opposition to the law and the idea of just paying more
10 taxes in general. Since people don't know it's already
11 a law, once they learn about it, they feel that these
12 are new taxes that are being instituted on them.
13 But, while paying use tax may be the law, there
14 is definitely a conflicting attitude towards it and a
15 general resistance to paying more taxes. Again, they --
16 right now most California residents say, "We pay
17 enough."
18 Three-quarters, 74 percent, of California
19 residents are opposed to the following statement:
20 If I have to pay sales tax in California on
21 items purchased from an in-state realtor (verbatim) in
22 California, then I should pay sales tax to California on
23 items purchased from an out-of-state realtor (verbatim).
24 So basically they're saying, I'm -- you know,
25 they're paying -- I'm paying -- buying something
26 out-of-state, I shouldn't have to pay taxes here.
27 Three-quarter are opposed to the idea of doing so.
28 Two-thirds say a major reason for their
17
1 opposition to the use tax is because they already pay
2 enough taxes. Now -- and also, they feel -- again,
3 about 69 percent of California residents say, "State
4 government should be doing more with the taxes that are
5 already coming in."
6 One thing that they didn't understand in the
7 survey was that there is a shortfall because people
8 aren't already paying this tax. Nobody understood that
9 in the survey.
10 We also tested various arguments that might be
11 used to support a use tax. And the results are mixed,
12 with less support for higher taxes but more support for
13 free market competition. So that might be one angle to
14 take.
15 However, when trying to probe as to what would
16 get people to really pay a use tax, it was the impact it
17 would have on them personally: Schools, firefighters,
18 police. They understood that the money was going to
19 help their community and then not cause schools to shut
20 down, firefighter stations to close or be laid off, that
21 was a motivating factor to get them to actually use the
22 use tax.
23 Any campaign really, we found, is going to have
24 to address some key elements of the use tax. It's the
25 law; that's one thing nobody's aware of. The purpose of
26 the use tax; that it's essentially a sales tax that you
27 need to pay; that it really does fund these critical
28 government services, and it's an easy tax to pay.
18
1 And we asked how they would like to pay it, you
2 know, and how they would like to learn about it. Tax
3 preparers are one way; they could learn about it from
4 them. They would prefer to collect their receipts and
5 pay, not do an estimate.
6 So we've got various ways that the residents of
7 California would be willing to therefore go forward and
8 say, "Yeah, okay, I need to pay this use tax." But it
9 really comes down to the bottom line is an education
10 campaign.
11 You know, I've done this before. When we see
12 this large of a body that just doesn't have the basic
13 fundamentals of what a concept is, that's the first step
14 of any campaign. Once there's a knowledge base, then
15 other things really do tend to fall in place quite
16 quickly after that.
17 MS. STEEL: Thank you.
18 MR. HORTON: Thank you.
19 MS. STEEL: Any comments, questions?
20 MR. RUNNER: Betty, then I -- I'll go in after
21 that.
22 MS. STEEL: Member Yee.
23 MS. YEE: Yeah. Thank you, Madam Chair.
24 Um, if I could pose the question to you. And
25 thank you for the overview of the findings.
26 MS. CORSO: You're welcome.
27 MS. YEE: You didn't speak, um, to some of the
28 findings that you had relative to the role for
19
1 retailers. Can you speak to that a little bit?
2 MS. CORSO: I'm sorry. Can you explain that
3 just a little bit?
4 MS. YEE: Yeah. I mean, I think there was, um,
5 some suggestion that the role of retailers is also
6 essential to collecting the use tax.
7 MS. CORSO: Yes, it definitely is.
8 Um, what -- people say when we ask them about,
9 you know, this -- did you pay this tax and why not? No
10 one ever collected the tax. And when we asked, Well,
11 would that be something that you would want to see?
12 Yes, they would like to see the out-of-state retailers
13 actually be the ones to collect the tax. That would be
14 the easiest way that they would find to pay it.
15 And I believe it was about two-thirds who said
16 they would prefer to see it collected in that manner.
17 MR. HORTON: Mm.
18 MS. CORSO: So that is something that, you
19 know, would make the residents' life in paying the tax a
20 lot easier. And they wouldn't even notice the burden,
21 is basically what that comes down to --
22 MS. YEE: Mm-hmm.
23 MS. CORSO: -- because they're paying tax and
24 that's what they're used to doing.
25 MS. YEE: I mean, it sounds like with each of
26 your findings there's something that kind of directly or
27 indirectly conflicts with it. Um, I mean, on this
28 particular situation, even though, um, there -- there --
20
1 there was some, um, acceptance of, uh, the retailer
2 collecting the tax, you also had 74 percent opposing,
3 uh, the statement that was, uh --
4 MS. CORSO: Mm-hmm.
5 MS. YEE: -- presented to them, "If I had to
6 pay sales tax in California, on items purchased from
7 in-state -- from an in-state retailer in California,
8 then I should pay sales tax to California on items
9 purchased from an out-of-state retailer," that you had a
10 significant --
11 MS. CORSO: Mm-hmm.
12 MS. YEE: -- number also opposing that
13 statement.
14 So, I guess my question is, how -- and I'm --
15 I'm going to back this up a little bit. But -- so
16 education obviously in the first step.
17 MS. CORSO: Mm-hmm.
18 MS. YEE: But is this kind of an all-in kind of
19 outreach campaign? That's the first step, but that's
20 not going to obviously resolve these conflicts.
21 MR. CORSO: It won't resolve the conflicts.
22 What we've learned is that when people are presented
23 with issues such as taxes, having to pay more for
24 anything, that there always is this conflict. They know
25 they should.
26 I mean, everyone knows they should pay a little
27 bit more to buy a green product, for example. They
28 should pay more to help fund schools, to help fund
21
1 firefighters. But do they want to? No. And that's the
2 conflict, I think, that you've recognized here in this
3 survey.
4 MS. YEE: We -- we recognize it almost --
5 MS. CORSO: All the time, I'm sure.
6 MS. YEE: In every election, yeah. Thank you.
7 MS. CORSO: That's what -- that's what we find.
8 If the retailers are the ones who are collecting it,
9 then they're not even noticing. I think that's what
10 they're saying. It's not something that they have to
11 do.
12 MS. YEE: Mm-hmm.
13 MS. CORSO: They don't have to add something on
14 to their state income tax. They don't have to write a
15 check back to the State of California to, you know,
16 reimburse for the taxes that should be paid.
17 That's why I think they'd like the retailers to
18 do it. So the conflict is, I don't want to pay it. But
19 if I have to pay it, I don't want it to be something
20 that I have to physically do.
21 I pay taxes when I buy something, you know, 95
22 percent say, "Yeah, I pay sales tax." This is something
23 that would be similar where they really wouldn't have to
24 go out of their way to do it.
25 MS. YEE: Mm-hmm. Okay.
26 Um, I want to pose a question to Mr. Garza, and
27 maybe Ms. Houser, if I could.
28 Um, I -- I was a little surprised that this
22
1 survey actually occurred. And I -- I wanted to just
2 kind of back up and see, um, what all ensued after this
3 Board -- I think, Mr. Runner, at your suggestion, your
4 leadership, we had developed, uh, an in-house survey.
5 We had also approved some funding for a more extensive
6 outreach program, uh, which, uh, I know was before the
7 legislature. And, uh, I know we had purchased, uh, I
8 think some, uh, banner adds right before the filing
9 deadline to, um, advertise the use tax on the income tax
10 returns -- um, the use tax line on the income tax
11 returns.
12 I -- I'm just trying to figure out how this
13 kind of fit into everything. And from this, uh, what
14 our next steps might be, given the findings. Uh,
15 because it just seems to me, uh -- and part of this goes
16 to the resources that we've already expended and the
17 resources that we may have available to do -- take on
18 the next steps.
19 MS. HOUSER: I can speak a bit to the, uh, the
20 current -- the survey that was conducted.
21 Uh, Liz Houser, Deputy for Admin.
22 Uh, when we were going through the BCP process,
23 the Tax Gap 2 BCP included a couple of elements; one was
24 a survey, and then there was a extensive -- or small
25 marketing campaign.
26 As we did our pre-briefs with the leg.
27 consultants, uh, several of them -- on the BCP, several
28 of them had said, you know, have you used a polling, uh,
23
1 source, and do have you some data that you could bring
2 to us that -- that would show definitively that, yes,
3 this campaign would be useful?
4 Uh, we indicated we had not. And they'd
5 indicated a strong interest in having that. Then when
6 we had our first budget hearing in mid-March, that was
7 brought up again.
8 Uh, so as we looked at this, we took it back to
9 the department head committee and discussed whether or
10 not we would have the funds available in this fiscal
11 year. We originally thought this survey was going to be
12 quite a bit more expensive than it turned out to be.
13 The amount we had --
14 MS. YEE: What was the cost?
15 MS. HOUSER: The amount we had budgeted was
16 like 200,000, we thought, in the BCP.
17 MS. YEE: Mm-hmm.
18 MS. HOUSER: And we were able to, uh, use
19 Harris's existing, uh, database of -- of clients, and it
20 was under 40,000. So we were able to, uh, find funds in
21 this fiscal year to be able to complete that survey, to
22 provide the data to the legislature, to hopefully move
23 our BCP forward.
24 Um, when we did present the results, they were
25 very interested in it. They did agree that it -- it
26 seems that a campaign, an outreach advertising campaign,
27 would be valuable. Uh, they felt that 2.5 million was
28 not adequate. The comments they made is if we need to
24
1 do this, you're going to need to put a lot more money
2 into it and this isn't the year to do it, while
3 recognizing that, yes, there was definitely some merit
4 to doing something like this.
5 So I know that Mr. Garza and his team are
6 looking at what we are able to do with some in-house
7 resources, and, um, I think he has some additional to
8 add on that.
9 MS. YEE: Yeah. Okay.
10 MR. GARZA: And, uh, you wanted a little more
11 on -- on our -- on what the External Affairs Department
12 did on a banner program?
13 MS. YEE: Uh, I just made a statement that you
14 spent money on a banner program in February.
15 MR. GARZA: Yes. Yes, ma'am, we did.
16 MS. YEE: Okay.
17 Let me go back to the Harris, um,
18 representative.
19 MS. CORSO: Mm-hmm.
20 MS. YEE: Here's what I'm troubled by. And
21 part of this, I think, our goal was to try to figure
22 out, um, and ascertain what kind of outreach would be
23 effective to increase compliance. I think that was
24 the -- actually it was an unstated goal when I was
25 trying to push for a collective goal at the, uh --
26 outcome of the, uh, market research.
27 The questions that you posed in this survey are
28 based on individual perceptions, right?
25
1 MS. CORSO: Yes.
2 MS. YEE: Okay. So how do we take into account
3 measuring hard data regarding compliance? And I -- I'm,
4 uh -- I mean, our own data, some of our own data
5 suggests that only about 0.5 percent of Californians pay
6 use tax via the income tax return line. And 37 percent
7 comply via the, uh, retailer's collection of the tax.
8 MS. CORSO: Mm-hmm.
9 MS. YEE: But -- so I'm just trying to --
10 and -- and this is all trying to get to a point of
11 discussion about what our next steps ought to be that
12 would be effective.
13 I mean I'm just -- I'm having a hard time here
14 because, um, as you just have presented the findings,
15 there's just always something kind of coming in that's
16 in conflict. But you're measuring individual
17 perception, uh, and we are trying to -- I'm trying to
18 figure out how to take that data and really, um, have it
19 be put in a compliance context for how we try to
20 increase our success.
21 MS. CORSO: The -- while we're measuring
22 individuals, what we're doing is, because the fact that
23 this is weighted to represent the entire State of
24 California, it is an aggregate. So all of these are
25 being aggregated together to kind of represent what
26 people in California think about this issue.
27 Um, whether -- you know, we have 16 percent who
28 say that they have paid a use tax in some way, shape or
26
1 form, um, yes, that is different than the numbers that
2 you have just cited. But this is also a -- it is a
3 perception issue. And one -- you know, we're going with
4 about 16 percent remember doing this. You know, so
5 we've got to take that in consideration.
6 We did also ask, How you would you like to hear
7 about a campaign? Where would you like to learn about
8 this? That was something that we did put forward. It
9 was what you might expect. We'd like to see a
10 television campaign. We would like to see, you know,
11 something being done on the Internet. You know, How
12 would you like to communicate? And why would you like
13 to hear this communication? You know, what messages?
14 Well, it helps government services.
15 So we did test kind of the campaign that
16 hopefully will get done, whether this fiscal or next
17 fiscal year. So we did look at perceptions of where the
18 education campaign should come to help guide the next
19 steps as well.
20 MS. YEE: Mm-hmm. Okay. Now, your memo also
21 suggested that, um, we could recover about 76 million of
22 the estimated, what, 1.1 billion that goes uncollected
23 every year.
24 Um, what was the assumption there in terms of
25 what kind of a campaign, how much we would invest to
26 recover the 76 million? I mean, it just seems like such
27 a paltry amount.
28 MS. CORSO: Actually that wasn't our number.
27
1 That was a number that we were presented with.
2 MR. GARZA: That was, uh -- yeah.
3 MS. HOUSER: Research Division.
4 MR. GARZA: That was our Research Division --
5 MS. YEE: Okay.
6 MR. GARZA: -- who came up with that number --
7 MS. YEE: All right.
8 MR. GARZA: -- and provided us with -- with
9 taking a look at potential success rates. I'm not an
10 expert at explaining the specifics on how that works.
11 MS. YEE: Okay.
12 Uh, do you know what was assumed there in terms
13 of what kind of a outreach campaign we would need to
14 invest in to recover that?
15 MR. GARZA: I'm sorry. I can check in and get
16 back to you on that, Ms. Yee.
17 MS. YEE: Okay.
18 Uh -- okay. Let me stop there, Madam Chair.
19 I'm -- I'm really having a hard time trying to think
20 about what our next step ought to be given this
21 information.
22 MR. HORTON: Yeah.
23 MS. STEEL: Thank you, Member Yee.
24 It's -- it's really hard to project the numbers
25 because even we said that $8 billion tax gap --
26 MS. YEE: Mm-hmm.
27 MS. STEEL: What -- you know, it's not really
28 clear that, you know, where -- I mean, they research it,
28
1 but it's really not sure that that's really right number
2 or not.
3 So, you know, these are like all the -- we kind
4 of like assuming that these numbers are right. But, you
5 know, a lot of times a number really fluctuate here.
6 But it was really interesting because use tax
7 part that, you know, I was listening to radio one time,
8 radio talk show host said, actually suggested his
9 listeners to go outside of California and buy
10 merchandise --
11 MR. RUNNER: Mm-hmm.
12 MS. STEEL: -- then you don't have to pay
13 taxes. So nobody really knows that they really have to
14 pay taxes.
15 And then, you know, I hear you that most of
16 people, that they want to have an easier way. I pay it
17 if it's the law. And then if -- you know, if somebody
18 who charges it at -- when I'm buying it, then I'm
19 willing to pay it. But I don't want to do extra work
20 end of the year that, you know, you have to keep all the
21 receipts and start calculating and put it in the tax
22 return, that's going to be very tough.
23 But, um, I'll go for Member Runner.
24 MR. RUNNER: Um, yeah. Just a couple
25 questions. One in terms of some of the methodology and
26 some of the specifics, some questions.
27 Um, I thought it was interesting in -- in your
28 description of a question, because I thought that one of
29
1 the questions was the issue of who should pay. And --
2 and Member Yee talked -- you know, was it the retailer
3 versus the -- the -- the purchaser.
4 I -- I thought the question was asked, uh, not
5 quite that clearly. Because, uh, as the question was, I
6 think it was something like, If you were to buy a
7 T-shirt online, who should pay the tax? And then the
8 answer was, The consumer or the retailer. That's
9 different than, Should the retailer collect the tax,
10 right?
11 MS. CORSO: Correct.
12 MR. RUNNER: Okay. So I'm not sure that
13 question makes -- I -- I think there's confusion in that
14 question because it makes it sound like the consumer
15 isn't pay it either, it's just going to be this retailer
16 who just takes it out of their pocket as opposed to --
17 MS. CORSO: Mm-hmm.
18 MR. RUNNER: -- transferring it there. So I'm
19 not sure that question is all that helpful at that
20 point.
21 Let me just ask, too, is this a survey that you
22 did -- you do in conjunction with -- on -- on the
23 computers or those who you already have a relationship
24 with or clients on a computer survey?
25 MS. CORSO: Yes. This was an online survey.
26 MR. RUNNER: So -- right. Help me -- I'm
27 assuming do you this, but there must be a way then to
28 extrapolate this out so that it does reflect all of
30
1 State of California --
2 MS. CORSO: Mm-hmm.
3 MR. RUNNER: -- in light of the fact that
4 you're only surveying those who probably are more
5 technologically, um, sophisticated because the survey
6 itself is on the computer. Does that make since?
7 MS. CORSO: I understand what you're saying.
8 MR. RUNNER: Okay.
9 MS. CORSO: Yes.
10 MR. RUNNER: Tell me how you do that.
11 MS. CORSO: Sure. Uh, we actually have been
12 doing this -- Harris Interactive was one of the pioneers
13 of online research. And when we started this back in
14 1999, we realized that at that point I want to say about
15 15 percent to 20 percent of the population was actually
16 regularly online.
17 At that point we knew we had to do a lot more
18 work to make sure that what we were saying -- we were
19 getting from our Internet research was actually
20 projectable to a general population who, 80 percent,
21 were not online.
22 We've done a lot of research and we've
23 developed a proprietary propensity score --
24 MR. RUNNER: Mm-hmm.
25 MS. CORSO: -- where we actually do telephone
26 research and online research at the same time, asking
27 the exact same questions. And then we do a score which
28 we then input to each of our respondents, to make sure
31
1 that we can project to the general population, whether
2 it's the State of California residents, the national
3 population as a whole, or some other group of
4 individuals.
5 As the years have gone by, we have found that
6 the propensity score that we need to use is getting
7 smaller and smaller, and now in some instances is
8 actually something we don't even need.
9 MR. RUNNER: Okay.
10 MS. CORSO: Mm-hmm. Because more people are
11 online.
12 MR. RUNNER: Okay. So at that point you've
13 compensated for that.
14 MS. CORSO: Yes.
15 MR. RUNNER: Adjusted the numbers accordingly.
16 MS. CORSO: Correct.
17 MR. RUNNER: Good. Okay.
18 Um, let me just ask a couple of questions in
19 regards to some of the -- some -- where I think some of
20 the value in this particular information is, uh, for us
21 to use with existing resources.
22 MS. CORSO: Mm-hmm.
23 MR. RUNNER: One is, I found it interesting --
24 because, again, we use a tax gap number for the
25 uncollected, um, use tax out there. And, again, I guess
26 this is back to Mr. Garza, and it may be a discussion
27 that you can have with, uh -- with Research and
28 Statistics.
32
1 One of the issues that we've always -- that
2 I've always found interesting is how we come up with
3 that number. Uh, how do we know what the tax gap is?
4 And -- and it's -- I think it's been explained to us in
5 the past here that we start with a national number of --
6 that has been established by dollars that are, um --
7 taxes that are -- that are not paid as a result of
8 online purchases. And maybe I should -- it's probably a
9 broader issue than just online. It's probably all, um,
10 use tax, whether it be telephone or -- or -- or mail
11 order or online.
12 And then -- and then our -- our staff has then
13 kind of brought that down and narrowed it down to
14 California then, which has created then our number for a
15 tax gap.
16 So, that being said, my question, I guess, that
17 I'd like to have us go back and look at now, does this
18 help us now start -- rather than with a national number
19 and work our way down, does this help us start with a
20 California number in terms of tax gap?
21 Because one of the issues that was interesting
22 to me is that I think it was 68 percent of those
23 surveyed who bought something, either by telephone,
24 online or, um -- or mail order, was less than $500. Um,
25 you know, that's pretty -- that's a lot of population
26 with a pretty low number.
27 Um, and -- and so I'm really interested to
28 see -- and I'd like to see if our -- our Research and
33
1 Statistics folks then can kind of see if starting with
2 these -- this survey, how this jives with what it is
3 that we've estimated the tax gap to be dealing with the
4 issue of a California num -- unique numbers, and see if
5 that makes any sense.
6 I -- I -- again, I don't know if it does or
7 not. But -- but it seems to me that -- just that number
8 itself struck me as a relatively low number that the
9 average -- because -- because what we do then is we take
10 the estimate, and that's how we build, for instance,
11 the, uh -- the chart in regards to what it is people can
12 estimate. Because we build the chart based upon what we
13 think the uncollected tax is.
14 Uh, and again, we started with the national
15 number and worked our way down. I'm interested to see
16 if our Research and Statistics Department could tell us
17 whether or not this gives us the ability to create a
18 more unique and accurate California number. Um, so it
19 may or may not. That's just kind of my observation.
20 The other issue that seems to me, um, is the
21 cross tabs are going to be extremely helpful. And
22 again, we just got these, um -- and, uh, there's a whole
23 notebook -- I think this is the one -- of cross tabs.
24 Because, again, the cross tabs allow us then to figure
25 out what our targeted message is, to who.
26 Um, for instance, um, you know, the issue of --
27 one of the issues in the demographics of five percent --
28 there's only five percent that purchased $2500 and
34
1 above. Well, I guess I'd phrase this as that's more of
2 a -- that's a use tax rich group as opposed to the
3 average, 69 and below, that paid $500 and less.
4 So the question is, how -- who are those
5 people, and how can we target a unique message to that
6 group? Because that group has, what, the highest
7 opportunity for revenue for us to collect.
8 And so the cross tabs, I hope -- in fact, I
9 know they will -- they'll tell us where those people
10 could be located, what their age groups are, those kind
11 of issues so that we can already use our existing
12 dollars that we use.
13 And I think one of the things we need to remind
14 ourselves, it's not like we spend zero right now trying
15 to collect use tax. We spend tens, if not hundreds,
16 maybe even a few million, dollars in our communication
17 about use tax now.
18 I think what I hopefully will -- we will do,
19 and I think this is, Mr. Garza, what I think we're
20 talking about doing, is going back to the Sales and Use
21 Tax Department and talking about then what has our
22 message been to people dealing with use tax in the past
23 and how is it that we might be able to hone that message
24 more specifically given the statistics that we have, so
25 that our return with maybe the exact same amount of
26 money that we're using has then -- has -- has more
27 dollars attached to it.
28 And, to me, I think that's -- now, if we can
35
1 get more money from the -- from the state in regards to
2 a more, uh, ambitious program, that's great. But I
3 think, just on its face, we ought to be able to figure
4 out how to target our message better now.
5 Um, and let me just ask, you know, the Harris
6 folks here.
7 MS. CORSO: Mm-hmm.
8 MR. RUNNER: Other states have done this, I
9 assume, uh, in terms of using you for this purpose.
10 MS. CORSO: Mm-hmm.
11 MR. RUNNER: Given the information that you
12 received here from the State of California, do you -- is
13 there enough -- do you believe there's information in
14 here for us to do a better targeted message?
15 MS. CORSO: I do. And, you know, one of the
16 things that we did find was that it is higher income.
17 College graduates, older individuals. You know, younger
18 individuals are not the ones who are spending a lot of
19 the money; they're definitely in that 69 percent.
20 So there is a targeted audience that I think
21 could be your first pass. And we did look at it by, you
22 know, the various districts in the state. So we could
23 even get it down to that level. I think it was district
24 two --
25 MR. RUNNER: Mm-hmm.
26 MS. CORSO: That was definitely the one that,
27 you know, I think spiked it.
28 So, yes, there is -- in those tabs that you
36
1 have there are how we've actually pinpointed who we
2 thought some of the key demographics were who we're
3 targeting.
4 MR. RUNNER: Okay.
5 And let me go back then to Mr. Garza, following
6 up on -- on some of the earlier questions. Um, and that
7 is, I -- I -- I would hope, and I think that's what
8 you're saying, is that that is indeed what is going to
9 take place now is you meet together with -- whether it
10 be Research and Statistics, or whether it be, um, Sales
11 and Use Tax, to come up with that more targeted program.
12 MR. GARZA: That is our plan, sir. We're
13 planning already to sit down together to look at those
14 cross tabs and the information, share that information,
15 and figure out exactly what -- how we can reformulate
16 our message, and whether or not the, uh, ways that we've
17 been doing business in terms of notifying our partners
18 and stakeholders should be adjusted. And that's already
19 been in the plans. As a matter of fact, we already have
20 a meeting planned to get together to do that.
21 MR. RUNNER: Good. Thank you.
22 And again, specifically, I'd be really
23 interested if you work specifically with Research and
24 Statistics to see about that -- that gap number and to
25 see if these numbers reflect -- are consistent with what
26 those numbers have been in the past. And if they are,
27 why? If they're not, why not?
28 MR. GARZA: Yes.
37
1 MR. RUNNER: Okay, thanks.
2 MR. GARZA: Yes, sir, I will do that. Thank
3 you.
4 MS. STEEL: Thank you.
5 Member Yee. Sorry -- yeah, Member Yee, go.
6 MS. YEE: Okay. Um, what -- what do you think
7 will be the timing of that, Mr. Garza? Can you kind of
8 put a plan together?
9 MR. GARZA: Yes, ma'am. I'm -- I'm assuming
10 that we could probably get this done within two to three
11 months to have a complete look at it. If -- if the
12 deadline needs to be quicker than that, we can -- we can
13 move that.
14 But it will be first -- once I sit down with
15 the team members and we discuss it and how we do that,
16 that's going to give us a better indication as to how we
17 can formulate after we take a look at those numbers.
18 MS. YEE: Um, I want to inject something in
19 here.
20 MR. GARZA: Sure.
21 MS. YEE: Um, I mean -- and I would agree with
22 Mr. Runner, there -- there are some things in the cross
23 tabs that I think will be instructive. Uh, but what I
24 want to inject in here is also the fact that we have,
25 uh, Assembly Bill 28X that's being held in abeyance
26 right now, uh, that the Governor sign that I think could
27 change the landscape here, where there will be, uh, an
28 obligation for online retailers to collect the tax.
38
1 Um, and so I want to be mindful that we're
2 not -- that we are in fact, uh, reaching out in the most
3 effective way possible. I also want to be mindful of
4 resources, but that is, I think, a significant, uh,
5 piece of how behavior may change or be affected.
6 So, uh -- and perhaps what you could do -- I
7 mean, what I would like to see is a timeline of, uh --
8 and -- of, uh, suggested next steps, um, targeted
9 outreach, to whom, um, media -- means of that outreach,
10 uh, resources that will be required for that to happen.
11 Uh, just to see how close we bump up against the AB
12 20X -- 28X operative date. Uh, but it seems to me
13 that's a significant piece that could really alter the
14 landscape here.
15 MS. STEEL: Thank you, Member Yee.
16 You know what, uh, let's have a meeting that,
17 you know, we're going to set up the timeline, Mr. Garza,
18 about this.
19 And Chairman Horton.
20 MR. HORTON: Um, I think most of it's been
21 said, but I just wanted to sort of reiterate, uh,
22 Mr. Runner and what Member Yee has said in reference to
23 the cross tab information.
24 Um, I think it's very telling, I mean it sort
25 of sounds on the surface as if though, uh, many of the
26 residents are not necessarily aware of the legislation
27 that passed in, uh, 1935. And part of the challenge
28 there is that it actually passed in 1935 and has been on
39
1 the records, uh, for some time, yet we have not been
2 extremely aggressive, uh, in, uh -- in pursuing the
3 revenue because a number of the complications, including
4 the legal challenge from a Commerce Act perspective and
5 a number of other challenges that the Board has faced
6 financially in being able to assess tax on 32 million
7 consumers, plus consumers in the State of California.
8 So I think it's important that we are cognizant
9 of -- of that, that the challenge that we face in that
10 regard. It seems to me that, as you look at the cross
11 tabs, we also saw that there was some what they referred
12 to as responsibility shifting, and that when you ask a
13 person a question, are you asking me or are you asking
14 me as a responsible person, or are you asking me as a
15 consumer and so forth.
16 If you're asking me as a responsible person, of
17 course I'm going to do the responsible thing. If you're
18 asking me to help schools and public safety, of course I
19 want to do that. Uh, do you want me to pay it now?
20 Well, that might not happen.
21 Uh, and so, uh, let's make sure that we take
22 that in consideration, uh, both from a cost perspective
23 as well as cross-tabbing and looking at the polling.
24 You know, I had some reservations on the
25 polling. I -- I must share with the Members, I had
26 somewhat committed the cardinal sin that says, well, you
27 know, you got 30 years' experience. You know what's
28 going on, and all these experts that we have here, well,
40
1 they know what's going on. But, quite frankly, the
2 information was actually pretty revealing.
3 Um, the indication that there's a more
4 willingness to -- to -- to pay the liability when it's
5 not as -- as obvious, if you will, and that's when the
6 retailer collects it. So a sense of educating the
7 retailer might -- might be easier for us to accomplish,
8 uh, from a financial perspective because there are less
9 retailers than there are consumers.
10 Educating the practitioner, uh, may be more
11 effective because there are less practitioners than
12 there are retailers. And so I'd be very interested in
13 what the -- you believe the effectiveness of educating
14 the different categories of, uh, responsible interested
15 parties in this. And the -- what you believe because
16 there are a couple of questions and it sort of implies
17 that if the out-of-state consumer was to collect it,
18 would you cooperate? And so what you believe would be
19 necessary if in fact the Amazon-dot-coms of the world
20 decide to invest in California's infrastructure, um --
21 I'll leave that alone. But, um, that there's
22 some information as to what -- what outreach campaign
23 may be helpful given the enactment of, uh, the
24 legislation shared by Member Yee, uh, and the subsequent
25 compliance. Because once the legislation passed, uh,
26 not everyone has said they're going to comply.
27 So, uh, with that, thank you very much. It's
28 been, uh, interesting.
41
1 MS. STEEL: Thank you.
2 Let me remind you 1935 we didn't have
3 computers. So we are moving forward right now, with all
4 of these laws.
5 MR. HORTON: Madam Chair, if I may.
6 MS. STEEL: Really quick.
7 MR. HORTON: Okay.
8 MR. RUNNER: Ooh.
9 MR. HORTON: That's okay. I will comply.
10 Let's -- let's make sure that we -- we share
11 with the public in this process that the Board has done
12 an exceptional job of reaching out and educating since
13 1935, uh, the constituents.
14 It's -- it's not without effort, and it's
15 certainly not without, uh -- uh, maximizing the limited
16 funds that the legislature has allocated for this type
17 of activity. But to the extent that we've had the funds
18 and -- and so forth, I know when -- when I served with
19 the Board of Equalization, some 23 or 24 years, we made
20 a point in every exit conference to talk about the use
21 tax. And that was something that was part of the audit
22 program.
23 So, let's tell the positive as well as the
24 negative in this process.
25 MS. STEEL: Thank you, Ms. Corso, coming out.
26 And thank you, Mr. Garza, and your staff for
27 hard work.
28 And this concludes the business of the Customer
42
1 Services Committee. Thank you.
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1 REPORTER'S CERTIFICATE
2
3 State of California )
4 ) ss
5 County of Sacramento )
6
7 I, KATHLEEN SKIDGEL, Hearing Reporter for the
8 California State Board of Equalization certify that on
9 May 30, 2012 I recorded verbatim, in shorthand, to the
10 best of my ability, the proceedings in the
11 above-entitled hearing; that I transcribed the shorthand
12 writing into typewriting; and that the preceding pages 1
13 through 43 constitute a complete and accurate
14 transcription of the shorthand writing.
15
16 Dated: June 13, 2012
17
18
19 ____________________________
20 KATHLEEN SKIDGEL, CSR #9039
21 Hearing Reporter
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